Brian Fallow takes a pre-election look at income and consumer spending data to get an idea of how the average New Zealander is doing financially

With the general election less than three weeks away it may be instructive to look at the hard data on incomes and consumer spending for a take on how the average New Zealander is doing financially.

The numbers should be reasonably cheerful given that the economy has the wind at its back: the most favourable terms of trade for 44 years which boosts national income, historically low interest rates, rapid population growth and boom conditions in construction and tourism.

Let’s start with the tax take. In the year to June just past, the Treasury reckons the PAYE take was up 5.9% on the year before and GST up 6.1%.

Even after adjusting for 2.2% population growth and 1.7% CPI inflation over the same period, those numbers imply around 2% growth in real per capita labour market incomes and consumer spending.

Statistics New Zealand reports retail sales in the June quarter were 6.7% up on the same quarter last year. Some of that increase is attributable to visitor spending, but the great majority of it reflects Kiwis going shopping.

In real term retail sales were up 5.4% on the June 2016 quarter, following a 6% increase the year before. The population in those two years grew 2.2 and 2.1% respectively.

How much is beer and how much is froth?

So the average New Zealander has been able and willing to buy more stuff.

But how much of that increased spending is backed by higher incomes rather than, say, the wealth effect from rising housing equity? How much is beer and how much is froth?

The Reserve Bank, after all, says that the household saving rate has been negative for the past three years – spending has outstripped disposable incomes -- and it expects it to remain so.

We got some fresh household income data from Statistics NZ on Friday.

It reflects income from wages and salaries, self-employment and government transfers, so essentially everything bar investment income. It is collected once a year along with the June quarter household labour force survey, which is based on a large sample of 15,000 households.

The latest survey found the average household income up 2.7% on June last year, so 1% higher after adjusting for CPI inflation.

Given a 1.9% increase in the number of households, the household sector’s aggregate income was 4.7% higher.

It is a bit of a worry that spending growth is outstripping growth in incomes. That can’t continue indefinitely.

And a 1% increase in real incomes is more than we are earning through growth in labour productivity. It has been essentially flat for the past four years.

Such concerns are unlikely to weigh on voters on September 23, however.

More relevant is that the average growth in incomes masks wide variations, when the statisticians break it down by parameters like gender (though that gap has narrowed), by age group, by occupation, by household composition, by source of income and by region.

Although the data are derived from surveying a large and carefully selected sample of the population, the results are subject to sampling error and the more you slice and dice them the more likely it is that an apparent change is not statistically significant.

So we should not read too much, for example, into the fact that on these numbers the average household consisting of a single parent with a dependent child or children saw their income fall 2.9% in the latest year, while the average couple with two dependent children enjoyed a 4.3% lift in income.

Such a caveat would not apply, however, if you just carve up the country between Auckland and Wellington (44% of the population) on one side and the rest of New Zealand on the other.

It may be relevant since New Zealand First in particular has been playing up a metropolitan/regional divide as Winston Peters goes around provincial cities promising the earth and throwing in the moon for good measure.

Incomes lower in provincial NZ and growing more slowly

Nationwide the average weekly household income is $1863. In Auckland it is $2111 and in Wellington $2178 while in the rest of New Zealand it averages $1668, or 10% below the national average. These numbers are before tax and before housing costs.

Not only are incomes lower in provincial New Zealand than in the commercial and political capitals, they grew more slowly too.

In the latest year income growth in the rest of New Zealand at 2.2% was weaker than in Auckland (4.7%) or Wellington (3.7%).

It would seem that provincial New Zealand has yet to feel the full benefit of the boost to national income from exceptionally favourable terms of trade – the ratio of export to import prices, or how many barrels of oil a container load of whole milk powder is worth on world markets, if you like.

The most comprehensive and authoritative information we have about income inequality and material hardship is from the reports compiled by Bryan Perry at the Ministry of Social Development.

The most recent incorporates results from the household economic survey conducted between mid-2015 and mid-2016.

Top decile pulling away from the rest

When Perry analyses the trend in incomes after housing costs across the whole range a clear picture of rising inequality emerges.

In 2009 the income of a household at the 90th percentile (that is, 10% down the list of households ranked by income) was 5.5 times that of one at the 10th percentile (10% up from the bottom). By 2016 the gap had widened to 5.9 times.

Between 2009 and 2016 household incomes at the 90th percentile rose 16.5%. This is after inflation, tax, transfers and housing costs. At the 10th percentile, the increase was 9.4% over the same seven years.

The median household income rose 12.5% over those seven years.

The increasing dispersion of incomes after housing costs has not all occurred under the National-led Government, however. It has been going on for 20 years. But the top decile has been pulling away from the rest particularly swiftly on National’s watch.

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*Brian Fallow is a former long serving economics editor at The NZ Herald. This is the latest article in an election year issues-based analytical series on economic policies he's writing for interest.co.nz.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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39 Comments

The increasing dispersion of incomes after housing costs has not all occurred under the National-led Government, however. It has been going on for 20 years. But the top decile has been pulling away from the rest particularly swiftly on National’s watch.

Exactly, if the neighbour can stand up to scrutiny as a relevant benchmark?

Governor Philip Lowe summed up the predicament during testimony to lawmakers last month, noting wage growth in Australia has slowed more than productivity growth: “The consequence of that is that the share of national income that is going to capital is at a five-decade high and the share going to labor is at a five-decade low.” Read more

"Nationwide the average weekly household income is $1863. In Auckland it is $2111 and in Wellington $2178 while in the rest of New Zealand it averages $1668, or 10% below the national average. These numbers are before tax and before housing costs."

These numbers irk me. We're living in a time where the term "household" doesn't necessarily reflect the expected composition based on previous eras. In short, the figures are deceptively high and indicate a relative economic strength that just isn't there.

If a household has two families living there, say grandparents and a couple with 2 or 3 children, then the income might be super + super + full-time + part-time. Lets assume that for easy numbers it is $350 + $350 + $800 + $350 = $1,850. Or lets assume that there is a parent with 3 adult children, where the parent is on a benefit and the children are working. It might be $250 + $800 + $800 + $800 = $2,650.

We need a base-line or weighted method for calculating household income to reflect this reality.

A lot of these types of household compositions aren't going to last forever and are largely born out of the existing economic challenges -- they're going to change eventually and will follow a demographic trend-line (i.e. as adult children fall into long term relationships, etc.). When this shift occurs, it will create an economic tidal wave that will again draw out poorly thought-through policy from hopelessly incompetent politicians and even worse, erratic commentary from so called "economists".

It would be fair to now coin the "family home" the "inter-generational boarding house".

You're somewhat correct. The multi generation, extended family, family home will not be a temporary phenomenon in NZ - it will become the new norm. The majority of non-pakeha families live this way and as that demographic is the growing demographic then hence the new norm. Housing crisis solved!

Household income also includes rental income. Not only does Auckland regionally have basically the largest household size, it also has the largest number/percentage of 'landlords'( with the exception of Gisborne ), or the highest number of renters each factor contributes and skews regional household income

I think it is supremely unhelpful to present an article on how "the average New Zealander is going financially" without presenting ANY consideration of debt. Where are household debt to income ratios at 3 weeks before the election?

"It is a bit of a worry that spending growth is outstripping growth in incomes. That can’t continue indefinitely."

No it can't. And for this reason, we shouldn't be looking at household wealth without including debt data too.

And for this reason, we shouldn't be looking at household wealth without including debt data too.

Exactly, voters need to know if NZ shares the negative aspects of Canada's level of indebtedness.

Canadian real estate prices have soared, and so did borrowing against that value.

Our analysis of domestic bank filings from the Office of the Superintendent of Financial Institutions (OSFI) shows that loans secured against property has reached an all-time high. More surprising is the unprecedented rate of growth experienced this year.

Increasing equity extraction remains a sleeper threat for Canadian real estate markets. Borrowing against homes increases the chance that a mild shock could impact real estate. This shock could be a correction, recession, or even just higher interest rates. Normal market mechanics have become a threat to the economy, which is pretty disturbing. Bottom line, try not to buy more home than you can afford. Read more

So we should not read too much, for example, into the fact that on these numbers the average household consisting of a single parent with a dependent child or children saw their income fall 2.9% in the latest year, while the average couple with two dependent children enjoyed a 4.3% lift in income.

I'd imagine that there is something valid to read into that - perhaps the effects of tax transfers.

Given the data used to calculate this included income from wages and salaries, self-employment and government transfers, so essentially everything bar investment income.

it's very misleading to my mind as tax transfers have become such a large part of how the "average New Zealander is doing financially". To my mind, how households are doing should be calculated minus tax transfers (i.e., WFF and Accommodation Supplements).

I don't think it is misleading for income to include all money coming in. In fact not to include all forms of income and still call it "income" would be a bit fraudulent without detailed qualifiers when quoted.

But it might be useful to find out the 'before' figure as well, so long it's always clear which figure people are quoting, two 'similar but no the same' figures can also be used in misleading ways.

So can the average person afford the average house price in Auckland, where over 1.6 mill live which is about 35% of the country.

Not sure how much increase in tax they would raise it, if any but whatever it is from the scaremongerers, its sure aint gonna hurt me as much as a debt pile of over 1 million dollars for the average household, with interest payments to pay off. Add that to all the other costs we have incurred under National and life under National is bleak.

The problem we will have under Labour is that too much will be given (as promised) as handouts - has to come from somewhere, so naturally they will raise taxes - history proves that. That is why they are keeping their tax policy secret until, AFTER the election. So I suspect middle NZ will be even worse off - remember Cullen's envious 'rich prick' comments about anyone on 60k! Things won't get better. And despite all the cries for equality, the true rich will simply get richer, less will own homes, and more will pay rent.

I STRONGLY recommend reading the report from which a few data points were used as the basis of this opinion piece. It is annoying to see a few data points extracted that are skewed rather than the objective totality. If pressed for time, just read the headline findings. There are some interesting and important results in the report, almost all of which are not discussed in this opinion piece.https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/mo...

I do not understand...
Both parties talk about things like housing unaffordablity, espec for the 1st home buyer and service ppl like teachers, police etc.
THEN on the other hand talk about increasing rent, income subsidies to over come poverty etc.
It then follows that both parties recognises that mid low income earners are not getting a fair cut of the economy boom.
So why not simply eliminate rent/ low income subsidies and increase the living wage... the tax (which is in the billions) to cover these subsidies is no longer needed, and the increase in the wage of such a large population would also increase the tax take for things like infrastructure
.
Spreading more of the wealth by wage distribution to the mid to low income sector then makes home unaffordablity a myth...

I think we all need to think of accommodation supplements (at the very least) as welfare for landlords, that way, the demand will be to stop paying it, then maybe rents will better reflect what people can afford, and on from that, house prices, if foreigners are kept out of the market, will as well, because the real elephant in the room they are both not prepared to see, is that house prices do, in fact, have to fall. Waiting for earnings to meet them is not going to be a happening thing in anything but the very long term, and given their real trend, probably ever. That is the truth we have to face.

The elephant in the room is dishonesty by any party that believes they can change this. Impossible to keep foreign buyers out - Oz tried that - didn't work - so many loop holes. We are a global player, our doors are open and can not be shut - by any party..

Steptoe, imagine you own a bakery, a retail store or any business you like, now you have to increase your staff's wages, what will you do to make up for the loss ? Increase your prices of course, knowing full well that your customers can afford to pay the extra, since they all got a wage increase. That applies to all businesses so everything you buy is more expensive and no one is really better off...

Rents and house prices in Auckland won't change, regardless of who wins the election - lots of rhetoric, but no party has the power to change the simple reality - we are now a global country, with global cities, and those with the $$ buy what they want - anywhere. So is Auckland too expensive for Kiwis? Yes. Will that change? No. Auckland like Sydney, London, Vancouver, etc , will become the home of global persons with the $$ to pay for it. Natural consequence of opening the country up - which started under Labour. No party can change the outcome unless we close the borders and adopt a non democratic political system. Want that?